As part of the Center for Audit Quality’s (CAQ) ongoing effort to keep members and stakeholders informed on significant public policy and accounting matters, we are pleased to offer the Public Policy and Technical Alert (PPTA). Each month, the PPTA highlights and examines the regulatory, standard-setting, legislative, and broader financial reporting developments impacting the public company audit profession. Please note that the PPTA is intended as general information and should not be relied upon as being definitive or all-inclusive. The CAQ encourages member firms to refer to the rules, standards, guidance, and other resources in their entirety at the hyperlinks provided below. All entities should carefully evaluate which requirements apply to their respective organizations.
In This Issue
Remarks Before the 2024 AICPA and CIMA Conference on Banks and Savings Institutions: Accounting for Crypto-Asset Safeguarding Obligations, a Facts-Based Analysis
The SEC posted a statement delivered by Paul Munter, Chief Accountant, before the 2024 AICPA & CIMA Conference on Banks and Savings Institutions regarding Staff Accounting Bulletin No. 121. In remarks titled, “Accounting for Crypto-Asset Safeguarding Obligations — A Facts-Based Analysis,” Munter highlighted certain observations from recent accounting consultations with entities where the staff in the Office of the Chief Accountant has not objected to an entity’s conclusion that its arrangement was not within the scope of Staff Accounting Bulletin No. 121, and that it should not recognize a liability for an obligation to safeguard crypto-assets held for others.
SEC Approves a New PCAOB Quality Control Standard
The SEC approved the PCAOB’s new quality control (QC) standard and related amendments to its standards, rules, and forms. QC 1000, A Firm’s System of Quality Control, establishes an integrated, risk-based quality control standard that will require all registered public accounting firms to identify specific risks to their practice and design a quality control system that includes appropriate responses to guard against those risks. Registered firms that perform engagements under PCAOB standards will be required to implement and operate the QC system. QC 1000 and the related amendments to other PCAOB standards, rules, and forms will take effect on Dec. 15, 2025.
SEC Investor Advisory Committee Discusses Investment Advice and Key Topics from Securities Litigation at September 19 Meeting
The SEC’s Investor Advisory Committee held a public meeting on Sept. 19, 2024, at the SEC Headquarters in Washington, D.C. The meeting was also webcast on the SEC website. The committee hosted two panels:
- Investment Advice: A History and Update on Who is Required to Serve in Your Best Interest; and
- Key Topics from Securities Litigation: Shareholder Proposals and “Tracing” in Section 11 Litigation
SEC Adopts Improvements to EDGAR System to Enhance Security, Filer Access, and Account Management
The SEC adopted rule and form amendments intended to enhance the security of its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and improve filers’ access and account management capabilities. Compliance with amended Form ID, the application for access to EDGAR, is required on March 24, 2025. All rule and form amendments will be effective on that date, and filers will be required to comply with all rule and form amendments by September 15, 2025.
PCAOB Spotlight on Bank Financial Reporting Audits
The PCAOB posted a new report, Spotlight: Bank Financial Reporting Audits. This Spotlight provides a summary of the PCAOB’s inspections of bank audits in recent years, including good practices. The PCAOB believes this publication is important given certain disruptions in the banking industry, including impacts from rising interest rates. The report discusses the effect of banking events on PCAOB inspections activities, and offers a review of inspection observations and good practices.
PCAOB Member Christina Ho to Host Forum for Auditors of Small Businesses and Auditors of Broker-Dealers in Miami
The PCAOB announced that it will hold the fourth of its in-person 2024 forums on auditing in the small business environment and on auditing broker-dealers in Miami on October 9, 2024. Board Member Christina Ho will host the one-day event at the University of Miami. In addition to remarks from Ho, the agenda includes the following:
- Presentations by PCAOB staff from the Office of the Chief Auditor, the Division of Registration and Inspections, and the Division of Enforcement and Investigations;
- Presentation of illustrative examples related to audit risks associated with revenue, the auditor’s responsibility to identify and communicate critical audit matters to investors, heightened risk of fraud, and the importance of journal entry testing; and
- Presentations by staff of the Financial Industry Regulatory Authority (FINRA) and the SEC.
There is no fee to attend the forum, but advance registration is required.
PCAOB Spotlight on Auditor Independence
The PCAOB posted a new report, Spotlight: Inspection Observations Related to Auditor Independence. This Spotlight highlights recent staff observations on independence, including common deficiencies that resulted in the issuance of comment forms, good practices, and other reminders, which can help audit firms and audit firm personnel comply with PCAOB and SEC independence standards and rules.
PCAOB Announces Agenda for September 26 Meeting of Investor Advisory Group (IAG)
The PCAOB held a meeting of its IAG on September 26, 2024.. The IAG discussed the following topics:
- PCAOB Standard-Setting Update
- IAG Presentation to the Board on Audit Committees’ Audit-Related Engagement with Investors
- IAG Presentation to the Board on Emerging Issues in Audit Firm Ownership Structures and Funding Arrangements
- IAG Presentation to the Board on Cyber Risk on External Audits
- IAG Presentation Regarding IAG Request for Critical Audit Matters.
PCAOB Spotlight on Observations From the Target Team’s 2023 Inspections
The PCAOB posted a new report, Spotlight: Observations From the Target Team’s 2023 Inspections. Created in 2019, the target team executes in-depth interviews and review procedures to gather information across audit firms. This Spotlight provides auditors and other stakeholders with a view into the target team’s work in 2023, including inspection results that cover examples of deficiencies that resulted in the issuance of comment forms, other observations, and good practices.
FASB Seeks Public Comment on Proposed Improvements to Hedge Accounting
The FASB published a proposed Accounting Standards Update (ASU) that would clarify certain aspects of the guidance on hedge accounting and address several incremental hedge accounting issues arising from the global reference rate reform initiative. The amendments in the proposed ASU would enable entities to apply hedge accounting to a greater number of highly effective economic hedges, thereby improving the decision-usefulness of information provided to investors. Stakeholders are encouraged to review and provide input on the proposed ASU by November 25, 2024.
FASB Seeks Public Comment on Proposed Clarifications to Share-Based Consideration Payable to a Customer
The FASB published a proposed ASU to improve the accounting guidance for share-based consideration payable to a customer in conjunction with selling goods or services. The proposed changes are expected to improve financial reporting results by requiring revenue estimates to more closely reflect an entity’s expectations. Stakeholders are encouraged to review and provide input on the proposed ASU by November 14, 2024.
September 2024 International Accounting Standards Board (IASB) Agenda and Meeting Papers Now Available
The International Financial Reporting Standards (IFRS) Foundation posted the agenda and papers for the September meeting of the IASB. Agenda items include:
- Power Purchase Agreements
- Dynamic Risk Management
- Amortized Cost Measurement
- Management Commentary
- Statement of Cash Flows and Related Matters
- Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard
The International Auditing and Assurance Standards Board (IAASB) Releases 2022-2023 Public Report
The IAASB shared its 2022-2023 Public Report, Balancing Effectiveness and Timeliness in Audit and Assurance Standard Setting. The report offers a comprehensive overview of the IAASB’s progress in addressing key public interest issues and reiterates its strategic direction to continue bolstering confidence in audits and assurance engagements. Key highlights include:
- Global Adoption of IAASB Standards
- Project Timelines and Milestones
- Transition to the Next Strategic Phase
- Advancements in Organizational Structure
- Outreach and Collaboration
IASB Launches Review of the Statement of Cash Flows
The IASB announced the start of a research project to review and improve the requirements for the statement of cash flows and related matters in IFRS Accounting Standards. This project comes in response to feedback during the IASB’s Third Agenda Consultation when investors, companies, and others identified this project as a high priority. Stakeholders — particularly investors — have suggested that the current requirements in IAS 7 Statement of Cash Flows could be enhanced to provide more useful information to users of financial statements. The IASB plans to discuss the initial research outcomes and determine the next steps for this project in the first quarter of 2025.
IASB Proposes Improvements to the Equity Method
The IASB announced a public consultation on proposed amendments aimed at helping companies to account for their investments in associates and joint ventures. IAS 28 Investments in Associates and Joint Ventures sets out how companies report on these investments applying the equity method. The proposed amendments add to and clarify how to apply the equity method by answering application questions the IASB has received over a number of years. The IASB is also proposing new disclosure requirements that will enhance the information companies provide about these investments. The IASB expects the proposed amendments will reduce diversity in practice and provide users of financial statements with more comparable and useful information. The IASB invites stakeholders to provide feedback on the proposed amendments. The comment period is open until January 20, 2025.
September 2024 IASB Update Now Available
The IASB announced that the September 2024 Update is now available. The IASB Update highlights preliminary decisions of the IASB.
The International Organization of Securities Commissions (IOSCO), International Federation of Accountants (IFAC) and the IFRS Foundation Co-Host an International Conference on Climate and Sustainability-Related Disclosures During Climate Week NYC
The IOSCO announced that almost 100 stakeholders involved in global sustainability standard setting, regulation, and accounting came together as part of a high-level international event at the start of Climate Week NYC. Entitled “Accelerating Climate and Sustainability-Related Disclosures: A Global Perspective,” the focus of discussions centered around how to advance global adoption and use of the International Sustainability Standards Board (ISSB) Standards and build an understanding of sustainability disclosure assurance in its early days.
IAASB Publishes New ISA for LCE Adoption Guide
The IAASB released a comprehensive adoption guide designed to help jurisdictions adopt the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE), an alternative to the full suite of International Standards on Auditing. The guide provides valuable insights into the adoption process, highlighting common steps and successful approaches, while also addressing potential challenges. The guide also outlines steps for legislative, regulatory, or relevant local bodies with standard-setting authority to allow practitioners to use the ISA for LCE.
IFRS Foundation Publishes Guide for Companies as Investors Call for Voluntary Application of ISSB Standards
The IFRS Foundation published Voluntarily applying ISSB Standards — A guide for preparers. The guide aims to support companies as they start to apply ISSB Standards voluntarily as well as helping them communicate their progress to investors. The guide will be a useful tool for companies, particularly in jurisdictions without regulatory requirements to apply ISSB Standards, including providing guidance on how companies can describe their application of ISSB Standards.
FRC Letter: External Private Capital and Audit Firms
The FRC issued a letter regarding its approach to external private capital in U.K. audit firms. The letter, addressed to audit firms and Recognized Supervisory Bodies, outlines the FRC’s approach to potential changes in ownership structures, emphasizing the need to maintain audit quality, independence, and public interest focus. The letter encourages early engagement with the FRC for firms considering such changes and reaffirms the FRC’s commitment to monitoring developments in this area.
FRC Publishes Key Accountancy and Audit Facts and Trends Report for 2024
The FRC released the 22nd edition of its Key Facts and Trends report, offering a comprehensive overview of the U.K. accountancy and audit landscape. This year’s report features data from 33 firms with Public Interest Entity clients out of a total of 41. It also provides data on the profession’s demographics, highlighting both progress and persistent disparities. The report reveals continued growth in the accountancy profession, with membership increasing both in the United Kingdom and worldwide. Student numbers show signs of stabilizing. In the audit market, the report notes an ongoing trend of consolidation, with a decrease in the overall number of registered audit firms. Despite this, there was an increase in the number of FTSE 350 audits undertaken by firms outside of the Big Four, with 41 now undertaken by non-Big Four firms, up from 35 in 2022.
IASB Review Concludes the Revenue Standard Is Working as Intended
The IASB concluded its Post-implementation Review of IFRS 15 Revenue from Contracts with Customers, finding that the Standard is working as intended and providing investors with useful information. Feedback from stakeholders and the IASB’s own research show that the Standard provides a clear and robust framework for revenue accounting decisions. While the overall verdict is positive, the IASB has identified a few application issues to consider in its next agenda consultation, which it plans to start in late 2025. They are:
- how companies decide whether they are the main seller or an agent in a transaction;
- how to report on payments to customers; and
- how IFRS 15 works alongside several other IFRS Accounting Standards.
October 2024 FASB-IASB Education Meeting Agenda and Papers Now Available
The IFRS Foundation announced the October 2024 FASB–IASB education meeting agenda and papers are now available.
Critical Audit Matters Survey: Research Findings, Q3 Survey
The CAQ posted the research findings from the third quarter Critical Audit Matters (CAMS) Survey. As part of the CAQ’s efforts to engage a broader array of stakeholders who use company-prepared financial and non-financial information and serve as a prominent voice for the audit profession, KRC Research is conducting quarterly research to inform the research team on topics of interest related to what active institutional investors think about the audit process and assurance on other corporate reporting and other audit firm related matters. The Q3 survey research is primarily designed to assess:
- The use of CAMs in the investment decision making process;
- Level of training or information investors received related to CAMs;
- Satisfaction with CAMs; and
- How CAMs could be improved.
Patomak Global Partners’ Kathleen Casey Joins CAQ Governing Board
The CAQ announced that Kathleen Casey, Senior Advisor at Patomak Global Partners, a leading strategy, risk management, and compliance consultancy, joined the CAQ’s Governing Board, effective September 26, 2024. Casey brings decades of financial policy experience, previously serving as an SEC Commissioner from 2006 to 2011, where she acted as the SEC’s principal representative in multilateral and bilateral regulatory dialogues, the G-20 Financial Stability Board, and the IOSCO. Casey focuses on financial markets policy, regulatory compliance and risk management, corporate governance, international regulatory developments, and enforcement in her current role. The CAQ’s Governing Board is comprised of a variety of leaders representing the financial reporting ecosystem, including chief executive officers from some of the largest public company audit firms, the American Institute of CPAs, as well as independent board members from stakeholder communities.
The Center for Audit Quality is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to audits of public companies. The CAQ promotes high quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit www.thecaq.org.
The CAQ Public Policy and Technical Alert (PPTA) is intended as general information and should not be relied upon as being definitive or all-inclusive. As with all other CAQ resources, this is not authoritative and readers are urged to refer to relevant rules and standards. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The CAQ makes no representations, warranties, or guarantees about, and assumes no responsibility for, the content or application of the material contained herein and expressly disclaims all liability for any damages arising out of the use of, reference to, or reliance on such material. This publication does not represent an official position of the CAQ, its board, or its members.
Questions and comments about the Public Policy & Technical Alert can be addressed to Donnie Heinerichs, Manager, ESG Initiatives (dheinerichs@thecaq.org) or Annette Schumacher, Senior Director, Professional Practice (ashumacher@thecaq.org).